Trailer Train Probe Has A Twist

June 12, 1988|By Carol Jouzaitis.

Say that you own a gigantic fleet of automobiles coast-to-coast. In fact, say that your fleet comprised almost every car in the country and you were in the business of leasing autos to anyone who needed transportation.

Imagine the bargaining power you would wield over General Motors, Ford or Chrysler-any automaker-anytime you wanted to replenish your fleet.

As their biggest, virtually their only, customer, you`d shrewdly play one manufacturer against another, whittling prices to a rock-bottom low. Without competing buyers, your bid would set the price of a new car.

Of course, such a scenario would be illegal. You would have what economists call a ``monopsony.``

In contrast to a monopoly, in which a single seller controls the market, a monopsony is said to exist when there`s only one buyer of a product.

Monopsonies are rare, so rare that antitrust experts are hard-pressed to name any.

But in an unusual case, the federal government is investigating whether a Chicago-based company, Trailer Train Co., the largest buyer of flatbed rail cars, holds monopsony power over the nation`s freight car manufacturers.

``It`s not something you run into much. But a monopsony can harm the economy just as a monopoly can,`` said Craig Conrath, an assistant chief in the Justice Department`s antitrust section.

A major rail car maker, Gunderson Inc., has joined the Justice Department in challenging Trailer Train`s specially granted status as a central car buyer for the railroads.

Trailer Train ``can crush a supplier,`` said William Furman, Gunderson`s president. ``It`s been quite a force to deal with.``

``It may sound like something evil, but it`s not,`` R.C. Burton, Trailer Train`s president and chief executive, said of the company`s antitrust immunity.

Trailer Train`s operation aids the railroads in competing for intermodal shipments, a fast-growing business that depends on finding efficient methods of switching freight between highway, rail and water.

The company was founded in 1956 by major U.S. railroads at a time when the industry began losing freight business to trucks. The piggyback business was developed as railroads began moving truck trailers and containers on flatcars to meet competition on the country`s expanding highway system.

The railroads decided they could reduce empty back-hauls if they shared the cars.

Thus Trailer Train entered the scene and was given permission by the Interstate Commerce Commission to buy flatcars and pool them for the railroads.

Today, the company is owned by 18 of the largest U.S. railroads and operates a fleet of more than 100,000 railcars. Its flatcar fleet is the biggest in the country, exceeding that of any single railroad company. It owns about 80 percent of all intermodal flatcars used by the rail industry.

The company said it bought $89 million of new intermodal and forest products equipment last year.

Last year Trailer Train asked the ICC to extend its antitrust immunity for another 15 years.

The request was expected to sail through, at least until the Justice Department suddenly intervened on Nov. 30, a day before the ICC was slated to act on it.

Government trust-busters filed a petition suggesting that Trailer Train had grown so large that it might be restraining competition. If it were, Justice said, flatcar prices could be driven below cost, eventually discouraging production and hurting shippers.

Finally, on May 17, the ICC voted to delay the case, pending a 60-day probe of Trailer Train. The commission has scheduled a public hearing in the case for July 18-22.

Findings in the investigation are expected to be turned over to the ICC in August.

As far back as a year ago, Justice officials were contacting flatcar manufacturers about Trailer Train`s application. The government noted that since Trailer Train first received protection from antitrust prosecution, the railroads have been deregulated.

``The railroads are a competitive sector now,`` said Justice`s Conrath.

``You just don`t see collective buying in competitive industries. The initial reason for the immunity is gone.``

``We thought we ought to take a hard look at whether Trailer Train has market power over price and output,`` he said.

The administration found an objector in Gunderson Inc, a major car producer with $100 million in annual sales.

``You don`t see the airlines getting together to buy jets or trucking companies buying trucks,`` said Gunderson`s Furman.

Last year, Trailer Train acquired 61 percent of all flatcars built in this country, though Gunderson contends that number is closer to 70 percent. Last year, Trailer Train said it bought 3,100 flatcars in 1987 out of 4,672 that were built.

Gunderson argues that while the railroads have become stronger in recent years, the carbuilders have become weaker.

In the early 1980s, the builders went through a depression brought on by oversupply, cutbacks by the railroads and tax law changes affecting car lessors.